Construction Giant WBHO Bets On UK To Diversify Against Risks

- Jul 20, 2018-

   

        WBHO, SA’s largest construction company by market capitalisation, has invested in two UK groups as it looks to diversify against risks to its South African operations.

Construction companies have been struggling to find large projects in SA, with government spending on infrastructure work having tapered off significantly over the past few years. This sent a number of companies overseas, especially to Australia and the UK, where they are building pipelines.

WBHO announced on Thursday that it had acquired 60% of Manchester-based contractor Russells and 32% of Russell Homes, two family-owned businesses, for £32.8m and £3.2m, respectively.

WBHO has been successful in Australia, where it has operated for 17 years, and now wants to repeat that success in the UK.

      

       The company, with a market capitalisation of R8.8bn, has spent the past few years taking on more projects in Australia. This provides protection against a lack of work opportunities and weak economic growth in SA.

Australian work accounted for 61% of its group revenue in the six months to December, according to its latest financial results.

Electus equity analyst Mish-al Emeran said even though Australia was highly competitive, the amount of work available in that market had made it easier for WBHO to justify looking for work in Australia.

WBHO’s management decided a couple of years ago to further diversify the group’s income sources and started doing business in the UK.

It entered the British market in June last year when it bought 40% of the Byrne Group.

It acquired another 40% of it last month.

     Russells and Russell Homes were founded by brothers Andrew and Gareth Russell. They will remain as shareholders and joint MDs, and manage the businesses from the UK. This means WBHO does not have to build a UK platform and employ new staff overseas.

Russell Homes, which offers the company an entry into the UK residential property market, specialises in acquiring land and building residential schemes. These include social housing, executive homes and luxury apartments. Russells contracts for construction work in the UK.

     WBHO’s CEO, Louwtjie Nel, said the acquisitions would create new sources of earnings for the group.

"We have been seeking growth opportunities in new markets to further diversify our earnings platform. The construction market in the UK was identified as offering the most potential at acceptable levels of risk," he said.

The Russell businesses’ order book was particularly strong in northern England.

"The Manchester and northwest construction markets currently offer a healthy project pipeline and the business has a strong secured order book for the 2019 financial year," he said.

The offshore focus has enabled WBHO to remain profitable during the industry-wide recession, which has hit its competitors.


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